Chinese yuan weakens to 6-year low against USD

Beijing, Oct 21 (IANS) The central parity rate of the Chinese yuan weakened to a six-year low against the US dollar on Friday.

The central parity rate of the yuan, weakened 247 basis points to 6.7558 against the US dollar, according to the China Foreign Exchange Trade System.

It was the weakest level since September 2010 as increased market expectations for an interest rate hike in the US led to a stronger dollar, Xinhua news agency reported.

In China’s spot foreign exchange market, the yuan is allowed to rise or fall by 2 per cent from the central parity rate each trading day.

The central parity rate of the yuan against the US dollar is based on a weighted average of prices offered by market makers before the opening of the interbank market each business day.

The market is gradually revising the value of yuan which is believed to be over-valued from 2014 to 2015 and the expected US interest rate hike has pushed the US dollar index to new highs, said Ren Zeping, chief economist at Founder Securities.

Ren also attributed the yuan’s weakness to increasing downward pressures on domestic economy after the authorities announced a slew of property curb policies.

The scale of capital outflows was seen expanded in September, according to a report by UBS China.

While the country’s export growth was lower than expected in September, policy makers would not resort to depreciation to stimulate exports and economic growth in the short term, the report said.

On September 30, the yuan exchange rate composite index, which measures the yuan’s strength relative to a basket of currencies including the US dollar, euro and the Japanese yen, weakened by 0.28 per cent month on month to 94.07, according to data with the central bank.

During the same period, the index that measures the yuan against the Bank for International Settlements currency basket weakened by 0.31 per cent month on month to 94.75, while that against the Special Drawing Rights basket weakened by 0.06 per cent to 95.05, according to the data.